TL;DR Strategy for next auction
Develop strong price floor & ceiling thesis for each potential incentive category. Bid aggressively below projected price floor in the high incentive pools and slide down and out the incentive gradient.
Disclaimer : These thoughts are my own. I am not sponsored or associated with the Aavegotchi team. Just a strange quasi-monkey-thing sharing his thesis with other quasi-monkey-things on a magical glass slab.
Quick recap: The first Aavegotchi portal launch was a typical first-come-first serve solution that sold out in minutes. These portals have been reselling on the secondary market 10X + since. The community approved a secondary portal drop, and the team pivoted to a novel auction model coined the Gonnaud-Bessire-McDonaugh (GBD) auction.
The GBD system rewards losing bidders with a return on their initial bid amount.
Ex. User 1 bids 100 and gets outbid by User 2, User 1 instantly receives their initial bid of 100 back plus 10% — etc.
The Aavegotchi team added a unique feature to the auction, by partitioning portals into different incentive categories.
None — No return
Low — Max 5%
Medium — Max 10 %
High — Max 15 %
Degen — Max 30%
These max returns are 1:1 with the minimum bid needed.
Ex. To outbid $100 on Low you need to bid a minimum of $105.
It’s important to note that the incentive you can receive is determined by how much you outbid the previous user. To get the max incentive it requires a doubling of the previous bid.
Ex. To receive the full 5% return on the low-incentive bids, a user must double the previous bid amount. To get the full 5% on an item at $100 you need to bid $200 — and upon being outbid you receive $210 back.
As it happened :
Early on, doubling bids is an acceptable risk but its ill-advised later. Because I was uncertain of how the floor would develop, I was conservative with my bets (not doubling each bet), this certainly prevented me from hitting 1X + returns but because I was new to the process this was a small price to pay.
TL:DR Flowchart
All into degen-portals early -> Pivot to high-portals -> Pivot to medium-portals -> Pivot to no-incentive portals (see bug below) -> Pivot to low-incentive portals (my goal was to acquire).
The first thing I did was set my Matic gas very high. Then at opening I made a floor on the degen-portals to collect a quick 30% (this is where most of my returns came early in the chaos).
I pivoted these returns into a couple high-portals, and finally pivoted those returns into the medium-portals. Things calmed quickly, but the slow march had just begun.
As my medium-portals became outbid, I looked to the low-incentive portals and started locking a few bids in. My goal was to acquire portals, so as I bet through the risk gradient, I was looking for a proper exit into the no incentive portals (I assumed they would be the cheapest come the auctions close on Sunday).
However, as I was keeping tabs on the discord server (as should you), the savvy Aavegotchi power-user Bearded revealed there was a bug — they were receiving medium-incentive rewards from the no-incentive portal category!
This juicy alpha informed me that so long as the bug persisted, the new floor for no-incentive portals would sync up with the much higher medium-portal floor. With this in mind I pivoted everything into the no-incentive portals.
Eventually the devs announced they couldn’t patch it and re-labeled all no-incentive portals to the medium-incentives category. The prices rose to meet the medium-incentive floor and I pivoted to the low-incentive portals so I could begin the race to the finish line.
What I would have done differently :
Develop a thesis prior to the auction regarding the floor + ceilings of each incentive level. This would have enabled me to stay in the more lucrative incentive levels for much longer.
Develop a cheat sheet for potential invalidations of the floor + ceiling — this way quick decisions can be made during the auction without making emotional errors in the hype.
There were interesting plays on the rarest items. Namely the dozen or so mythic items — most going for $100K+. Being early and aggressive with these items would have been a relatively safe bet to get a quick return in one shot. However, the mythic items were limited to 10% max reward. Good for whales (which I unfortunately am not).
Strategy for the next auction :
There is little information regarding when the next auction will be — or if it will have the same incentive gradient. Assuming it functions as the previous auction here is my general strategy.
Develop strong price floor & ceiling for each potential incentive category. Bid aggressively below my price floor in the high incentive pools and slide down and out the gradient.
Currently my acquisition strategy is still in development, so for now I plan to exit under the floor at the medium-incentive category. This is likely to change, subject to more information the closer to the auction we get.
Risk Acknowledgement :
I am bullish on the project — so I wouldn’t be irate at actually getting one of the items I bid on— however, for those that aren’t, its important to note that this is an auction.
There's certainly a non-zero probability that you may end up with the item you bid on. Its for this reason I didn’t bid on wearables during the auction, my knowledge on their value is lacking but my thesis on portals gives me confidence in their value if I win my auction.
We saw a bug in this auction that wasn’t devastating — but its a good reality check , bugs can happen and some are devastating.
Finally, there is exposure to the native token $GHST. All auctions must be purchased in $GHST and the rewards received are also in $GHST. The price could drop while your auctions are locked in, exposing your stack to this risk.
Thanks for reading! Not financial advice.
